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Accelerating activity could force RBA hand

Staff Reporter 1 minute read

By: Staff Reporter

Rising activity could overshadow global sovereign debt concerns and force the RBA to tighten monetary policy when the board meets again tomorrow.

Soaring coal and iron ore prices is widely expected to lift the national income by $20 billion. This teamed with the fact that official figures show the rate of inflation is not easing as fast as expected, and the RBA could have a case to raise the cash rate.

Citigroup economist Josh Williamson said the central bank would need to lifts its gross domestic product forecasts by 0.5 of a percentage point to 3.75 per cent by the end of the year and to 4 per cent by mid-2012, while underlying inflation would bottom at 2.75 per cent in the December quarter and stay there through the first half of 2011.

“The upgrades should result in the market repricing cash rate expectations, and reinforce the view that the RBA will need to move official interest rates through neutral and into the restrictive zone over the next 12 months,” Mr Williamson told the Australian Financial Review.

Accelerating activity could force RBA hand
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